Is the credit channel alive? Evidence from firm-level data in Korea

Ling Jin
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Ling Jin: Inha University

No 2021-1, Inha University IBER Working Paper Series from Inha University, Institute of Business and Economic Research

Abstract: This paper examines how monetary policy affected the borrowing cost of listed firms in Korea before and after the Global Financial Crisis (GFC). I find that the effects of credit channel of monetary transmission are different by the assets size and debt-equity ratio levels of firms. Also, I find that the relationship between monetary policy and the borrowing spread of firms has changed before and after the GFC. The relationship is only significantly positive after the GFC. A statistically significant positive value implies that credit channel works in Korea. As for firm asset size partition, the relationship is significantly positive only after the GFC. As for firm debt-to-equity ratio partition, the coefficient of monetary policy for the low debt-to-equity ratio firms is significant of before and after the GFC. In contrast, the coefficient for the high debt-to-equity ratio firms is significant only before the GFC. Also, the U.S monetary policy has a significant impact on domestic firm’s borrowing spreads after the GFC. These relationships work through international banking channels.

Keywords: Monetary policy Transmission; Credit channel; Borrowing spread; Firm-level data; International banking (search for similar items in EconPapers)
JEL-codes: E44 E51 E52 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2021-01
New Economics Papers: this item is included in nep-bec, nep-cba, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:inh:wpaper:2021-1

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